"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of the voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." - Ludwig von Mises

Sunday, September 26, 2010

Stop Scotland – Britain wants to get on!

Here's part 2 of my Newsnet series:

Rediscovering Oil - A From Rags to Riches Story

Part 2(of 3): Stop Scotland – Britain wants to get on!

The UK government colluded with Scottish unionism on the matter. Why? Because oil could not only make an independent Scotland very prosperous – but it could do the same for Britain as well, and it has. Yet, what former Prime Minister James Callaghan called “God’s gift”, North Sea oil received almost no examination from British economic commentators.

Last November there was an excellent article on the subject by The Telegraph’s Edmund Conway:

What was the industry that powered Britain towards prosperity in the 1980s, and made us one of the most dynamic and successful nations in the Western world?

…If your first reaction was “the City”, think again. The answer is North Sea oil.

…One of the peculiarities of British politics – and economics – is the reluctance to take into account the critical contribution of oil to the economy. We spend so much time droning on about our excessive reliance on the financial sector that we tend to ignore this elephant in the room. But the truth is that, for the past quarter of a century, Britain has been a petro-economy. In 1999, we were producing more oil than Iraq, Kuwait or Nigeria.

…Take a look at the numbers. In 1979, when Margaret Thatcher came to power, the amount Britain owed, as a nation, was £88.6 billion. In the subsequent six years, taxes from the North Sea (which had been pretty much non-existent previously) generated an incredible £52.4 billion.

Smarter observers knew that oil was and is a hugely valuable resource. So the second part of Scottish unionism’s two-pronged attack on the significance of oil was to relentlessly repeat the point that North Sea oil was “a flash in the pan,” it was “running out” and it “wouldn’t last five years.” Under scrutiny this case would easily have fallen apart. However, that would entail Scotland’s unionist and Britain’s media applying said scrutiny. At the end of the 70s, oil, apparently, had little future.

There is now a glut in new discoveries in the North Sea. In June this year, a low profile story on the BBC reported that the company EnCore had discovered 300 million barrels of recoverable oil, and projected that this would rise.

In recent months more finds have been made and last week US news agency Bloomberg reported that BP had confirmed that it would continue to invest £12 billion pounds in North Sea oil extraction over the next 5 years, including drilling a deep-water well off Shetland next year.

However, while North Sea oil has made Britain PLC - with a population of over 50 million - a “petro-economy”, Scottish nationalism has failed to convince the Scottish electorate that with the same revenues an independent Scotland could be solvent.

Scottish unionism, in this regard, has effectively and impressively outmanoeuvred Scottish nationalism.

The power of Scottish unionist tactics has not just been in dumbing down the public debate but in undermining the confidence of nationalists themselves. After all those decades of Scotland being told oil is “running out”, maybe it is, oil is a dead story, economic history, a missed opportunity and no longer relevant to the debate on independence.

In fact, the opposite is true. North Sea oil has never been so important.

To understand the importance of oil you have to understand its relationship to finance. In Britain’s ‘petro-economy’, oil is vital for the future of Britain’s financial sector and currency. Revenues from oil mean business and consumers are taxed less and that stimulates growth. When an economy is growing then investors speculate on it. Why? Well, they know that there’s future income to pay returns on their investments. The financial sector is cock-a-hoop. This explains why the City boomed when North Sea oil arrived. Conway’s Telegraph piece explained the situation:

The benefits went far beyond the public finances. Were it not for the cushion provided by oil exports, the deficit in Britain's current account – its international ledger – would have been one of the worst in the Western world. Moreover, much of the massive rise in business investment in the years before the financial collapse was due entirely to spending in the North Sea.

…In short, without oil, recent history would have been vastly different. Growth would have been weaker, consumer spending less and the public finances decidedly more parlous. That’s not to say Britain would have been an economic pygmy – just that oil is a luxury that has permitted us to live much more comfortably.

Now that the debt crisis has exploded the myth of the City, now insolvent, as Britain’s primary wealth generator and with the UK’s economy bankrupt - through systemic City fraud - Britain’s economic and social life support machine is powered by oil off Scotland’s coast.

So, while in relation to Scotland, the English commentator Ruth Deech felt justified recently on BBC 4’s Any Questionsin claiming that: “We’re all subsidising them by way of benefits and all sorts of reasons”, oil in Scotland’s North Sea is in fact, as we speak, keeping Britain’s economic and social structure together.